I teach at a school that offers a 403(b) plan. Is this plan a good way to save for retirement?

Answer:

In general, yes. Also known as a tax-sheltered annuity, a
403(b) plan is an employer-sponsored plan designed for employees of certain
tax-exempt organizations (e.g., hospitals, churches, charities, and public
schools) to invest for their retirement. Typically, the employer purchases
annuity contracts or sets up custodial accounts for eligible employees who
choose to participate. A 403(b) plan is technically not a qualified plan, but
it is said to mimic a qualified plan because it shares some of the same
features.

Like a 401(k) plan, a 403(b) plan enables you to make
contributions to the plan on a pretax basis. These are known as
salary-reduction contributions because they come from your salary before taxes
are withheld, thus reducing your current taxable income. For tax year 2016,
you are allowed to defer up to $18,000
a year or 100 percent of your compensation, whichever is less, to the plan. If you're 50 or older, you can make an extra "catch-up" contribution
of $6,000
in 2016 (additional special catch-up contribution rules may also apply).
Employers will sometimes contribute to the plan as well, although employer
contributions are generally not required and (if made) must vest before you are entitled
to them. Earnings (e.g., dividends and interest) on your 403(b) plan
investments accrue tax deferred. Only when you withdraw your funds from the
plan do you pay income tax on contributions and earnings. If you wait until
after you're retired to begin withdrawing, you'll probably be taxed at a lower
rate.

The combination of pretax contributions and tax-deferred
accumulation creates the opportunity to build an impressive retirement fund with a
403(b) plan, depending on investment performance. You may even qualify for a
partial tax credit for amounts contributed if your income is below a certain
level. In addition, a 403(b) plan may allow you (under certain conditions) to
withdraw money from the plan while still working for your employer. Beware of
these "in-service" withdrawals, however. They may be subject to both regular
income tax and (if you're under age 59½) a 10 percent early withdrawal penalty.
A plan loan, if permitted, might be a better way to obtain the cash you need.

Although some 403(b) plans have a limited number of
investment choices, many of these plans have been offering a broader range of
investments in recent years, including many well-known mutual funds.

Note: Your employer may also allow you to make after-tax "Roth"
contributions to your 403(b) plan. Because your Roth contributions are after tax, those contributions are always tax free when distributed to you. But the main attraction of Roth 403(b) contributions is that the earnings on your contributions are also tax free if your distribution is "qualified." In general, a distribution is qualified if it is made more than five years after the year you make your first Roth 403(b) contribution, and you are either 59½ or disabled when you receive the payment.

Retirement for K-12 School Employees

Review the small, manageable steps that can lead to a comfortable retirement.Get started

Information provided has been prepared from sources and data we believe to be accurate, but we make no representation as to its accuracy or completeness. Data and information is not intended for solicitation or trading purposes. Please consult your tax and legal advisors regarding your individual situation. Neither AXA Equitable nor any of the data provided by AXA Equitable or its content providers, such as Broadridge Investor Communication Solutions, Inc., shall be liable for any errors or delays in the content, or for the actions taken in reliance therein. By accessing the AXA Equitable website, a user agrees to abide by the terms and conditions of the site including not redistributing the information found therein.

Please be advised that this materials is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transactions(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent advisor.

"AXA" is the brand name of AXA Equitable Financial Services, LLC and its family of companies, including AXA Equitable Life Insurance Company (NY,NY), MONY Life Insurance Company of America (AZ stock company, administrative office: Jersey City, N.J.), AXA Advisors, LLC (member FINRA, SIPC), and AXA Distributors, LLC (member SIPC). AXA S.A. is a French holding company for a group of international insurance and financial services companies, including AXA Equitable Financial Services, LLC. The obligations of AXA Equitable Life Insurance Company and MONY Life Insurance Company of America are backed solely by their claims-paying ability.